PensionsOct 13 2021

Pension Works: 'We’ve gone the other way with DB advice'

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Pension Works: 'We’ve gone the other way with DB advice'

A year on from the regulator's ban on contingent charging, which has seen many advice firms leave the DB space, one firm explains why its DB business has boomed. 

Pension Works head of business development Will King explained his firm has gone the opposite way to many advisers and has grown rapidly in the defined benefit space in the past year. 

Pension Works focuses on DB transfer advice as a specialist advice firm, which other advisers can outsource their business to. 

Speaking to FTAdviser yesterday (October 13), King said: “There's very few firms that are doing what we're doing and very much going the other way.

"To do [what we are doing], you need to have an extremely slick operational side of things and you have to be at the forefront in terms of technology, in terms of staffing and training and internal processes and protocols.”

The Financial Conduct Authority has come down hard on the DB advice space in the wake of the British Steel pension transfer scandal. 

Since 2018 the DB adviser sector has shrunk by two thirds, from 3,000 firms to 1,200 now. 

Data from the Financial Conduct Authority also showed between June 5, 2020, when the contingent charging ban was implemented, and July 31, 2021, 687 firms gave up their permissions.

It came after a similar number, 700 advice firms, relinquished their permissions in the lead up to June 5, in the wake of the FCA's crackdown on unsuitable advice.

King said: “The big thing in any right is that there are so many firms, every year, dropping out of offering DB pension advice because it's so highly scrutinised by the regulator - it's a highly complex area and always has been. 

“You're working to timescales because they have a timescale on CTV values so that makes life difficult and the big one is the difficulty in getting PI cover as well.” 

He explained many generalist advice firms have decided not to renew their DB permissions or were being forced not to renew.

“It makes sense if you're only doing a case every three months or six months - why would you do that and take on the liability for those few cases when you don't need to,” he said.

PII issues will remain

Professional indemnity insurance is an ongoing issue for financial advisers and one which Pension Works also recognises.

King said his firm had a strong relationship with its insurer so the firm was provided an extended period for the latest renewal.

“They said that they want to work with us ongoing because of the nature of our model, which is really good to hear, because obviously a lot of people are hearing the opposite of that, or having fees and costs going through the roof because they're dealing with a defined benefit advice.

“It's good to know that there are some insurers still out there who are willing to insure those of us who are still involved in DB. I think it's just because of the length of our relationship with them and because of no issues that we've ever had with them, that's stood us in good stead and allowed us to build a good foundation to build the model that we've built.”

However he added: “But that's not getting away from the fact that the PI market is very, very difficult and occasionally you hear rumours that it's due for a change and there are people coming back into the market. I personally just can't see it, if anything has gone the other way, so certainly for the foreseeable future, I think it's going to remain as is. 

“It's going to be very difficult for smaller firms, and a lot of larger firms actually, to get PI cover to do DB, just because that's the nature of the market so it's all leading towards this consolidation of DB pension advice and outsourcing to companies like ours.”

Hot on compliance

King explained for his firm dealing with DB pension transfers meant being “hot on compliance”.

“We don't do any spot checks or anything like that. We compliance check every single case multiple times before it's issued to the client. Now, that can have its negatives because it takes time to do that, but it's so important that by the time that advice is issued to the client it is the correct advice. 

“By that we're not just looking after ourselves and presenting ourselves but protecting the clients and protecting the introducers as well because it's their relationship with the client.”

King said when the contingent charging ban was announced and came into play, the firm didn’t know what to expect. But it has since come to see the ban as a real positive.

“The whole abridged advice model has gone extremely well, and we do find that it filters out the vast majority, if not all the cases that would result in advice not to transfer are filtered out at the abridged advice stage, and that's great for the client because we don't charge for abridged.

“From our side, we’re then a lot more confident if it goes through that abridged stage, once it goes to full advice that it is going to result in a transfer.

"But around that, it's all about managing client expectations, and the expectations of our partner companies. Because of the nature of the structure that the regulators put in place, there is this chance that it's going to get through to full advice stage and be advised not to transfer, and we have to charge the client, so we have to make them really, really aware that that is the possibility.”

The way Pension Works ensures communication is clear is by sending clients an online fee agreement prior to moving forward and asking them to sign it. 

“They are really made very well aware from the outset and then again before that advice stage. So, as long as we manage their expectations, and we say it's optional for you to receive this full advice, this is the possible outcome, then that's all we can do and just make sure we hold their hands throughout.”

sonia.rach@ft.com

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